Advanced AccountingQuestion 5300 of 305
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3. What is the amount of contract revenue recognized in each year of contract?

Options

AYear 1: ` 80 crore, Year 2: ` 80 crore and Year 3: ` 80 crore
BYear 1: ` 40 crore, Year 2: ` 116 crore and Year 3: ` 84 crore
CYear 1: ` 37.60 crore, Year 2: ` 118.40 crore and Year 3: ` 84 crore
DYear 1: ` 37.60 crore, Year 2: ` 120.80 crore and Year 3: ` 81.60 crore
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Correct Answer

✅ Option C — Year 1: ` 37.60 crore, Year 2: ` 118.40 crore and Year 3: ` 84 crore

All Options:

  • AYear 1: ` 80 crore, Year 2: ` 80 crore and Year 3: ` 80 crore
  • BYear 1: ` 40 crore, Year 2: ` 116 crore and Year 3: ` 84 crore
  • CYear 1: ` 37.60 crore, Year 2: ` 118.40 crore and Year 3: ` 84 crore ✓
  • DYear 1: ` 37.60 crore, Year 2: ` 120.80 crore and Year 3: ` 81.60 crore

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Detailed Solution & Explanation

To calculate the contract revenue recognized in each year of the contract:
1. Year 1: Revenue = 23.5%ב 160\displaystyle 23.5\% \times `\,160 crore = ‘ 37.60\displaystyle `\,37.60 crore.
2. Year 2: Total contract price increases by ‘ 80\displaystyle `\,80 crore due to variation, making it 160+80=‘ 240\displaystyle 160 + 80 = `\,240 crore.
- Stage of completion = 65%\displaystyle 65\%.
- Cumulative revenue to end of Year 2 = 65%×240=‘ 156\displaystyle 65\% \times 240 = `\,156 crore.
- Revenue recognized in Year 2 = 156−37.60=‘ 118.40\displaystyle 156 - 37.60 = `\,118.40 crore.
3. Year 3: Total contract revenue recognized = ‘ 240\displaystyle `\,240 crore.
- Revenue recognized in Year 3 = Total (240\displaystyle 240) - Cumulative Year 2 (156\displaystyle 156) = ‘ 84\displaystyle `\,84 crore.
Hence, **Option C** is the correct answer.

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